Gold futures hover near three-week high as Ukraine tensions mount

Gold traded near the highest level in three weeks as renewed fears of escalating tension between Ukraine and Moscow curbed investors risk appetite and boosted the metals safe haven demand. Last weeks Fed minutes continued to support the yellow metal. Palladium jumped to a three-year high.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in June traded at $1 324.20 per troy ounce at 12:27 GMT, up 0.39% on the day. Prices shifted in a daily range between a three-week high of $1 330.80 and $1 319.40 an ounce. The precious metal fell 0.14% on Friday to settle the week at $1 318.60 an ounce, its second straight weekly advance.

Gold extended its upward momentum as mounting tensions between Russia and Ukraine limited investors risk appetite, boosting the metals safe haven appeal. Kiev gave pro-Russian separatists a deadline until Monday morning to yield or face an anti-terrorist operation by its armed forces, while the European Union and the United States work on tougher economic sanctions, if Russia continues its course.

According to Ukraine’s Interior Minister Arsen Avakov, camouflaged gunmen fired on government forces near Slovyansk. Meanwhile, Russia’s Ambassador to the United Nations Vitaly Churkin said before the U.N. Security Council that “henchmen” of Kiev’s pro-European government are organizing attacks, backed by its Western allies.

According to Lyall Grant, Britain’s U.N. ambassador, Russia has stationed around 40 000 troops near its border to Ukraine after another 25 000 were moved into the recently annexed Crimea region.

European Union Energy Commissioner Guenther Oettinger will hold talks regarding the threat of a gas war at a meeting of foreign ministers on Monday, while the United States is separately preparing to impose further sanctions on Putin’s close allies, as well as Russian entities, if Moscow continues its current course. President Vladimir Putin warned last week that Moscow can cut gas supplies to Ukraine, if it doesn’t pay its bill, thus leading to a reduction in supplies down the chain to Europe.

Georgette Boele, an analyst at ABN Amro, said, cited by CNBC: “You have tensions between Russia and the West over Ukraine again which is giving support to gold, although the strength coming from expectations interest rates in the U.S. will stay low for a prolonged period is a more dominant driver overall.”

The minutes of FOMCs latest meeting, which were released last Wednesday, revealed that the Federal Reserve played down anticipations of some of its own members that interest rates might be raised faster than projected. This pressured down the US dollar and provided support for the yellow metal.

The US dollar index, which measures the greenbacks strength against a basket of six major currencies, fell by 1.2% last week. The June contract stood at 79.81 at 12:28 GMT on Monday, up 0.36% on the day. Prices held in a daily range between 79.84 and 79.62.

Georgette Boele added for CNBC: “But as the U.S. data continues to improve, there could be a readjustment in interest rate expectations and thats when gold is going to suffer.”

The Labor Department reported last Thursday that the number of people who filed for initial unemployment benefits in the week ended April 5th fell to a seven-year low of 300 000, outperforming analysts’ expectations for a moderate drop to 320 000 from the previous period’s upward revised 332 000.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were reduced to 804.42 tons on Friday, the weakest level since March 7. The fund has not received any fresh inflows in almost four weeks. It lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons has been withdrawn last year.

Investors are now awaiting the release of key economic data from the US to gauge the strength of the economy, including retail sales, consumer inflation, housing data, initial jobless claims and New York and Philadelphia manufacturing gauges.

Elsewhere on the precious metals market, palladium futures for settlement in June traded at $811.85 per troy ounce at 12:23 GMT, up 0.63% on the day. Prices jumped to $815.00 an ounce earlier in the day, the highest level since August 2011, as tensions in Ukraine spurred concerns over supplies of the metal from Russia, the worlds biggest producer, while prolonged labor strikes in No.2 producer South Africa further added to supply fears. The metal has gained around 14% this year due to growing demand from the auto industry and fears of supply disruptions.